Creating a Personal Business for Life (PB4L):
TDMP, Tax Deductible Mortgage Plan

In five years, Sandy Aitken created one of the fastest growing businesses in Canada* and at the same time, a stable Personal Business for Life (PB4L) for himself: one that will sustain him and his family for a long time.

(* As determined by Profit Magazine in 2008.)

Now how did he do that? Some of the ingredients that made TDMP (Tax Deductible Mortgage Plan) a success included:

1. It had a lot of DV, differentiated value. In Canada (and most nations unlike the US), home mortgages are not deductible from income in normal circumstances. Sandy created a way to make mortgage payments deductible from income and his methodology is approved by CRA, Canada Revenue Agency. At the same time, this technique did not subject the principal residence to capital gains taxes when it is sold.

2. His marketing channels included existing independent, mortgage brokerages and investment advisors: two groups with substantial reach. He co-opted both.

3. His marketing plan included educational seminars (including online courses) that not only reached the pros but were open to the consumer. The latter also put pressure on the industry to take advantage of this new opportunity.

4. The name itself "TDMP, Tax Deductible Mortgage Plan" is an important marketing tool. If Sandy had called it the 'Dodge Taxes/Make Millions Plan' or something equally outrageous, it would have never taken off and been accepted by a generally risk-averse Canadian pulic. TDMP sounds like a government sanctioned 'Plan' like a RRSP (Registered Retirement Savings Plan) and is now part of the financial planning landscape in Canada. What's in a name? A great deal, it turns out.

I have sketched out Sandy's model below on excerpts from the Mortgage Journal's October 2009 issue. In essence, a home owner who has paid off his or her mortgage (or who has substantial equity in their home), can borrow against the value of the home (by putting in place a secure line of credit or a new or increased mortgage amount) and then invest the proceeds in mutual funds or other financial products or even in rental real estate, if they so chose. Borrowing at perhaps 3%, they can make investments that will presumably return 5% to 15% p.a. and the interest paid on the mortgage on their principal residence is now tax deductible.

It's clever and effective.

Probably what makes Sandy's business really work is that he is using pre-existing marketing channels and supporting them. He is using an idea that while it is not really new (see John Walsh's comments below), he is doing it on an industrial scale with hundreds of mortgage brokers and financial planners pushing it across Canada.

Prof Bruce

Footnote from John Walsh:

TDMP is a new name, but it is an old trick. I do this for a couple of my clients right now.

In all the real estate investing books I've read or business books that get into the idea of making your mortgage tax deductible, they usually call it the "Smith Maneuver". There have been other names, but the concept is pretty much the same. Financial Planners have used the idea (likely under another name) for years as well.

This is also one of the strategies that H.E.I.R. (hence the name 'home equity investment') uses.

In summary, taking existing equity in your principal residence and investing it into real estate investments (if the people are smart, many bought stocks/mutual funds which in my view is not so smart).

Mortgage products available for this:

1. HOK home owner kit from Laurentian Bank-in fact, the more I find out about this, the more I like it.
2. Matrix - FirstLine, which has seemingly unlimited configurations.
3. STEP - Scotia - some issues with this product but similar idea.

I would be curious as to what "training" Sandy is giving mortgage agents. This doesn't strike me as rocket science. I try to push this product at OREIO. Just makes so much sense. What probably differentiates Sandy is the scale at which he is doing it and his extensive marketing channels.

John Walsh, Mortgage Agent, Ottawa Canada

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